Tag Archives: Stakeholders

The ‘surprise’ recorded in our local paper over the release of a Senate enquiry into the wealth management practices of the CBA (Commonwealth Bank of Australia) is itself rather surprising. The systems developed by the CBA were effectively (even if unintentionally) designed to generate sub-optimal outcomes for people seeking advice from the CBA financial planning system. And whilst the CBA affair has a way to go, the three clear lessons for all governing bodies and managers should already be obvious; you get the behaviours you encourage (KPIs matter), the normalisation of deviance is a constant threat and focusing on shareholder value over stakeholder value will paradoxically always destroy shareholder value! For non-Australian readers the executive summary of the Senate report makes chilling reading.

A few weeks back I published an article entitled ‘What you measure is what you get’ the core message in this article was that people will understand precisely what matters to their managers by observing the behaviours those managers incentivise and will adapt their behaviour to succeed in the ways defined by the incentive / KPI system. The Senate report suggests the incentives paid to CBA financial planners actively encouraged them to sell high risk products. Additionally, the KPIs and bonuses paid to several layers of managers overseeing the planners were directly tied to the profits made by the planners under their control. In short, the incentive system was designed to encourage the behaviours that occurred, placing the maximisation of bank profits ahead of good outcomes for their clients. Whilst I’m sure there were countervailing policies within the CBA that talked about customer satisfaction, the strength of the message from the incentive / bonus / KPI system would be much stronger – actions really do speak louder than words.

The transgression from bad policy to bad behaviour, possibly criminal behaviour, is a classic example of the ‘Normalization of Deviance’. The Normalization of Deviance’ is a social process that can affect any close knit group. American sociologist Diane Vaughan describes the social normalization of deviance as meaning that the people within the organisation, or group, become so accustomed to a deviant behaviour that they don’t consider it as deviant, despite the fact that the behaviours far exceed their own ethical standards or ‘rules’. I touch on this subject in Chapter 1 of my new book ‘Making Projects Work’ that will be published next year. A recent article by Jeffery Pinto also highlights the critical linkages between governance, project management and the risk of the ‘Normalization of Deviance’ (see: ‘Project Management, governance and the normalization of deviance’). More on this important topic later.

The third lesson is possibly the most important. The CBA financial planning system was designed to put shareholder value (bank profits) ahead of stakeholder value. The stupidity of this short term view of the world has been demonstrated time after time with damaging headlines and the trashing of value caused by short term profit focus. A couple of examples include the damage caused to BP by the Deepwater Horizon disaster and the disastrous loss of reputation suffered by, and $1.2 billion fine paid by, Toyota caused by the Lexus ‘sticky accelerator’ tragedy. I suspect the CBA will be added to this list soon.

As the ‘father of stakeholder theory’ Ed Freeman has been saying for more than 20 years, the creation of stakeholder value is the best way to create shareholder value. As I discovered a couple of weeks ago, his message is as compelling today as it ever was.

The reason I find this whole saga of interest is a direct personal experience. Quite a few years ago I took over the management of my mother’s finances. At the time her savings were invested in a product from a major commercial financial services organisation. The structure of the package was very well crafted but we noticed over a couple of years how little savings had grown compared to my own. We transferred my mother’s funds into a different structure where we pay fees monthly up-front. The difference in the rate of growth of the funds was dramatic. Whilst we see all of the fees being paid each month to our financial advisers (and they are much higher then the fees we could ‘see’ in the commercial package), the hidden fees must have been enormous and definitely included trailing commissions paid to the adviser that set up the scheme for my mother in the first place. There was no malpractice involved in my mother’s case but the net results were probably sub-optimal and certainly influenced by commissions paid to the adviser.

Which brings me to final thought focussed on how the Australian Government will deal with the recommendations arising from the Senate report over the coming months. Are they going to continue to look after their ‘shareholders’, the major banks and other contributors to the Liberal Party coffers or are they going to look after their stakeholder community? The big difference between politics and business is it’s the shareholders who ultimately decide on the management of the business, it’s the stakeholders who decide on the next government. It will be interesting to see if stakeholder management has made its way onto the government’s agenda.

Ed Freeman, one of the people whose work had a significant influence on the development of the Stakeholder Circle® will be speaking in Melbourne tomorrow at an ACCSR event hosted by Deakin University, an event I am really looking forward to attending!

R. Edward Freeman is described as the ‘father’ of Stakeholder theory. In his 1994 book Strategic Management: A Stakeholder Approach, Freeman identifies and models the groups which are the stakeholders of a corporation, and recommends methods by which management can give due regard to the interests of those groups. In short, Stakeholder theory addresses the key question of who really matters and the morals and values associated with managing an organisation.

The traditional view of the firm is the shareholder view. This theory states that the shareholders are the owners of the company, and the firm has a binding fiduciary duty to put their needs first, to increase value for them. Stakeholder theory argues that there are other parties involved, including employees, customers, suppliers, financiers, communities, governmental bodies, political groups, trade associations, and trade unions. Even competitors are sometimes counted as stakeholders – their status being derived from their capacity to affect the firm and its other stakeholders.

This wider view is central to the definition of ‘stakeholder’ included in the PMBOK® Guide and the Stakeholder Circle® methodology. The PMBOK® Guide’s definition of stakeholders is: ‘Individuals, groups or organisations who may affect, or be affected by a decision, activity or outcome of a project or perceive this to be the case’.

Whilst this definition would seem sensible, the nature of what is a stakeholder is highly contested with hundreds of definitions existing in the academic literature. Probably the most widely accepted ‘contrary view’ is built on Mitchell’s[1] theory of stakeholder salience. This theory derives a typology of stakeholders based on the attributes of power (the extent a party has means to impose its will in a relationship), legitimacy (socially accepted and expected structures or behaviours), and urgency (time sensitivity or criticality of the stakeholder’s claims).

Legitimacy and the traditional view that stakeholders are ‘the owners’ of an organisation are closely aligned. The implication is that some stakeholders can be ignored because they do not have a ‘legitimate right’ to be considered. I disagree with this view and support Freeman’s wider concept. As he point out in some of his on-line talks:

Do you want employees that are not committed to the success of the organisation?

Do you want customers who do not value your offerings?

Can you afford to alienate the society in which you operate?

Add to Freeman’s questions the fact that ‘non-legitimate’ stakeholders can still create major problems for an organisation through social media and other channels makes taking a wider view of stakeholders seem inevitable. Ultimately the success of an organisation depends on finding ways to align and fulfil the needs of all of its stakeholders – those that do this best are most successful.

The paradox is that investing in successful stakeholder engagement ultimately benefits the organisation’s owners. Numerous surveys have demonstrated that corporations that actively embrace ‘corporate social responsibility’ consistently out perform those that focus on profits first. To quote Freeman: “Every business creates, and sometimes destroys, value for customers, suppliers, employees, communities and financiers. The idea that business is about maximizing profits for shareholders is outdated and doesn’t work very well, as the recent global financial crisis has taught us. The 21st Century is one of ‘Managing for Stakeholders’. The task of executives is to create as much value as possible for stakeholders without resorting to tradeoffs. Great companies endure because they manage to get stakeholder interests aligned.”

The problem with adopting the wider definition of stakeholders implicit in stakeholder theory is managing the large number of potential stakeholders it embraces. Some will be supportive, others neutral or antagonistic; some will be more important than others. Determining who is important at this point in time (and what to do about them) requires a pragmatic methodology focused on:

Identifying, understanding and prioritising the current stakeholder community.

Determining a communication plan to affect desired changes in the attitude of important stakeholders and to maintain or enhance the attitude of the general stakeholder community (usually segmented).

Implementing the communication plan.

Regular reviews to assess the effectiveness of the communication process, update the stakeholder community, and refocus your stakeholder engagement efforts.

The new CPM is ‘Complex Project Management’ and whilst most of the current project management tools and practices including risk management, scheduling and EVM remain important, they are not sufficient to successfully manage a complex project according to Stephen Hayes, from the Canberra based International Centre for Complex Project Management ICCPM.

ICCPM Ltd was established by Australian, UK and US government bodies and major defence industry corporations, and is now a substantial network of global corporate, government, academic and professional organisations committed to the better management of complex projects across all industry and government sectors focused on improving the success of complex projects.

Whilst all projects have a degree of complexity (see: Project Size and Categorisation) CPM is focused on the major projects undertaken in response to ill-defined and often mutually-incompatible stakeholder requirements and are subject to uncontrollable external influences and almost continuous change.

Successfully managing this type of project needs outcome focused leadership that is capable of developing context specific innovative approaches to issues backed by the tenacity to deliver ‘no matter what’!

The latest report facilitated by ICCPM in conjunction with Global Access Partners and a range of leading public and private sector organisations is entitled “Complex Project Management: Global Perspectives and the Strategic Agenda to 2025” (available from https://iccpm.com/).

This report has developed a framework for on-going research into CPM under six broad themes:

Delivery leadership – the ability to navigate through uncertainty and ambiguity to achieve the desired outcome.

Collaboration – working as one team to a mutually agreed goal and equitable reward (including operating the entire supply chain as a single entity).

Culture communication and relationships – maximising the effectiveness of the human asset by understanding and responding to human behavioural need.

Sustainability and education – continuous learning, maintaining currency in leadership capability and knowledge transfer across generational boundaries in order to sustain through-life capability.

Against each of these a basic set of policies and actions have been developed to define the future work and research agenda of ICCPM, its partners and academia. To this end ICCPM is working to develop a permanent, co-ordinated global specialist research agenda for CPM.

With support from the UK Cabinet Office, the Australian Government, universities including QUT and DAU, professional associations including IPMA and APM, and companies such as BAE Systems and Thales (to name but a few) this initiative may prove successful. Two glaring omissions from the list of supporters though are the AIPM and PMI –maybe this blog will trigger some action.

Certainly the emergence of stakeholders at the centre of complexity means stakeholder management and engagement will be a topic of increasing importance which is only to be encouraged.

Note: The contents of this post are based on the executive summary of the ICCPM – GAP CPM Task Force report: www.iccpm.com

A small group of project manager s spent an enjoyable 90 minutes in an ‘un-conference session’ during the Project Zone Congress earlier this month discussing the biggest single challenge to project success – stakeholders! Depending on the type of project, between 50% and 90% of the risks in the risk register are associated with stakeholders.

Agreement was quickly reached by the group on the proposition that ‘stakeholders’ are a very wide and diverse group, some supportive and useful, others negative and obstructive and all with different needs and aspirations; so the conversation quickly moved onto the management of stakeholders and the proposition that ‘effective stakeholder management = effective stakeholder communication’. But what does effective mean? There is probably not a lot of point in communicating if you do not want an ‘effect’.

To be effective, the project’s stakeholder engagement and communication planning needs to develop an overall strategy for these two closely linked processes and then identify appropriate tactics to maximise the probability of achieving a successful project outcome.

Effective communication is the key, and there are three general classes of communication; reporting, public relations and purposeful communication.

Reporting fulfils two useful purposes; firstly it demonstrates you are running your project properly, project managers are expected to produce reports and have schedules, etc., issuing reports shows that you are conforming to expectations[1]. Secondly, copying a report to a person keeps you in touch with them for when more significant communications are needed. Reporting may not be communication but it is useful[2].

Public relations (PR) cover the broadcast communications needed to provide information to the wider stakeholder community to market the value of the project and to prevent information ‘black holes’ developing that breed misinformation and rumour. The power of social media to amplify bad news is massive and it is nearly impossible to kill rumours once they have started even if the information being circulated is completely false. Effective PR using a range of available mediums including web portals and social media can mitigate (but cannot eliminate) this type of negative influence on your stakeholders, both within the organisation and externally.

Developing an effective PR campaign is a skilled communications process but well worth the effort on almost every project. It is far easier to create a good first impression than to try to change an already formed bad impression among your stakeholders. This aspect of project communication is probably the most underrated and under used.

Purposeful communication is hard work and needs to be focused on the important stakeholders (both positive and negative) with whom you need to cause an effect. Purposeful communication needs to be planned, which means you need to know precisely what effect you are seeking and then work out how to achieve the effect. This usually means you want the stakeholder to start to do something, do something differently or stop doing something. Some of the tactics that can be used to make your communication effective include:

WIFM – ‘what is in it for me’ – try to align your needs with something the stakeholder desires (this is called Mutuality).

WIFMF – ‘what is in it for my friend’ – if there is no practical WIFM is there something the stakeholders friends of colleagues may benefit from?

Build peer pressure through the stakeholder’s network of contacts. It’s hard to hold out against a group.

Use your network to develop persuasive pressure.

Delivering information incrementally in a carefully planned way with different people playing different roles in the communication plan.

Final thoughts:Effective communication needs to be designed to be effective within the stakeholder’s culture. This means leaning how the person operates and what is normal for them – you need to communicate within their paradigm. And you need regular testing of the overall communication process to make sure it’s working effectively.

Don’t be lulled into a false sense of security just because everything in your stakeholder environment is currently peaceful and productive. A ‘big mission’ or crisis can override culture for a short time and make a group seem like a homogeneous team but once the pressure is off people revert to their normal behaviours and unexpected issues can emerge – constant vigilance and maintenance of key relationships is critical to achieving final success

Constant surveillance and routine reassessments of the stakeholder community and of the effectiveness of your communication strategy and tactics is essential to understanding how your stakeholder community is evolving and to monitor the effectiveness of the communications[3]. Based on these assessments you can adjust the strategy and tactics you are using to ensure on-going effective stakeholder engagement.

My last post looked at developing a grounded definition for the governance of PPP based on established definitions for corporate governance (see: Defining Governance – What the Words Mean) . This post looks at how the definition can be put into practice to govern an organisation doing projects and programs.

An organisation is governed by its ‘governing body’ which, depending on the nature of the organisation, may be an individual, a small group, a committee or a formally constituted board of directors. Whilst this statement may seem obvious, it is vitally important! The governing bodies job is to represent the interests of the organisation’s owners and to appoint, direct and oversight the organisation’s management (see more on organisational governance).

Within the organisation, the workers are appointed, directed and overseen by management, management is appointed, directed and overseen by the executive and the executive is appointed, directed and overseen by the governing body. However, whilst the governing body has responsibilities and obligations to both the organisation’s owners and other external stakeholders, within the organisation, the governing body is self-governing and very often self-appointing (in practical effect if not always in theory). And unlike management which is hierarchal, within most Boards the legal assumption, and general practice, is that all of the members are equal .

The key responsibilities of the governing body are:

Framing the values and ethics of the organisation

Appointing the CEO and other key executives

Developing and maintaining the organisation’s strategy in collaboration with the executive

Taking appropriate actions to support the needs of stakeholders and sustainability (CSR).

The ‘governing body’ cannot achieve these responsibilities alone, management support is essential. However whilst the governing body can and should delegate aspects of the organisation’s governance processes to management and should hold management accountable for their performance, the ‘governing body’ is ultimately responsible for the actions of the organisation it is governing, including the actions and failures of management.

A Governance Framework

The Australian Institute of Company Directors (AICD) has developed a comprehensive Corporate Governance Framework to help directors understand their responsibilities and develop the skills they need to serve effectively on a ‘governing body’. The framework sums up the practices (skills, attributes and expertise) that comprise good director practice as demonstrated by responsible directors.

It is designed as a wheel that has four quadrants depicting the four key areas of focus and engagement applying to every individual director: individual, board, organisational and stakeholder. Each quadrant is divided into a number of slices representing director practices essential to the quadrant’s focus (the different sizes of the slices do not represent the relative importance of the topic).

Together with the AICD’s Guide for Directors and Boards: delivering good corporate governance, which articulates a set of values and principles that underpin the behaviours and practices of sound directorship, the framework provides a solid basis for developing the skills needed to ‘govern’ an organisation.

Governing Projects, Programs and Portfolios (PPP)

Whilst the inclusion of stakeholders as one of the four focuses is something I strongly applaud, the governance of PPP is focused in the ‘green quadrant’ and really only connects directly into a couple of the sub-sectors, primarily, implementing the organisations strategy (3.3.1). Therefore, a different frame is needed to understand the governance of PPP in the overall context of governing an organisation. This reframing consolidates many of the personal responsibilities highlighted in the AICD framework whilst retaining the core tenet that governance is a holistic process and a significant failure within the PPP domain can have ramifications across the entire organisation. The ‘petal diagram’ below is our attempt to reframe the concepts of governance is it is affected by, and affects the PPP domain.

The Governance ‘Petal Diagram’

The ‘petals’ seeks to aggregate the various functions of governing the organisation into the five main themes, whilst other aspects of governance such as the performance of the ‘governing body’ and of individual directors have been largely omitted for clarity. The importance of these ‘other’ functions from the AICD perspective of developing the competence of directors is crucially important; the ‘petal diagram’ assumes competent directors and an effectively functioning board and focuses on the board’s role in governing the organization.

The domain of PPP is focused on implementing the changes needed to fulfil the organisation’s strategy and therefore, the processes of PPP are grouped in the ‘Governing Change petal’. The other ‘petals’ are aspects of governance and management that affect, or are affected by the change processes.

This petal diagram is a synthesis of several sources focused on various aspects of governance that are associated with projects, programs and portfolios. The primary source is the AICD ‘Company Directors Corporate Governance Framework™’. discussed above.

Secondary sources are a series of Standards that focus on the governance of projects and ICT, including:

Governance is the act of governing. Originally the province of ‘rulers’ over the last century or so, as power and authority has devolved to various types of organisation, and the influence of organisations within society has grown, the concept of governance has become increasingly important to the people entrusted with leading these organisations and to the stakeholders who own or intact with the organisation, corporation or department.

At the most basic level:

To governis to rule with authority…; to direct and control the actions and affairs of others… and

Governanceis the controlling, directing or regulating influence.

Therefore organisational governance can be defined as the system by which organisations are directed and controlled. It involves a set of relationships between an organisation’s management, its board, its shareholders and other stakeholders and provides the structure through which the objectives of the organisation are set, and the means of attaining those objectives and monitoring performance.

Project, program and portfolio (PPP) governance
PPP Governance is a sub-set of and integral to organisational governance. Using the two most common definitions of ‘corporate governance’ (corporations being one form of organisation) it is possible to drill down to a meaningful definition of PPP governance as follows:

The original definitions

1. Sir Adrian Cadbury (1992):Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship.

2. OECD (2004 p.11):Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring.

Converting the definitions to PPP governance:

3. Cadbury adapted to PPP governance:PPP governance is the system by which an organisation directs and controls those aspects of its work that will be accomplished through the performance of projects or programs. Boards of directors (or their equivalent) are responsible for the governance of their organisation and for satisfying themselves that an appropriate PPP governance structure is in place. This includes understanding the organization’s strategic aims, providing the leadership to put them into effect, supervising the management of PPP and overseeing the stewardship of the resources used in PPP.

4. OECD adapted to PPP governance:PPP governance involves a set of relationships between an organization’s board (or its equivalent), its executive management, its PPP management and other stakeholders. PPP governance also provides the structure through which the objectives of the organisation are refined, and the means of attaining those objectives and monitoring performance. Good PPP governance should provide proper incentives for management to pursue objectives that are in the interests of the organisation and its owners and should facilitate effective monitoring.

Distilling the essence of the definitions:

5. Combined elements of the adapted definitions:

PPP governance is the system by which an organisation directs and controls those aspects of its work that will be accomplished through the performance of projects or programs.It involves a set of relationships between the organization’s board (or its equivalent), its executive management, its PPP management and other stakeholders.

The board of directors (or their equivalent) are responsible for the governance of the organisation and for satisfying themselves that an appropriate PPP governance structure is in place.

PPP governance provides the structure through which the strategic objectives of the organisation are refined and the means of attaining those objectives are implemented.

PPP governance also includes understanding the organization’s strategic aims, providing the leadership to put them into effect, supervising the management of PPP, overseeing the stewardship of the resources used in PPP and monitoring performance.

Good PPP governance should provide proper incentives for management to pursue objectives that are in the interests of the organisation and its owners and should facilitate effective monitoring.

6. Key components of the definitions:

Creating the PPP management system including Portfolios / program / project management systems.

Stewardship = the assignment and acceptance of responsibility for overseeing and protecting something considered worth caring for and preserving by shepherding and safeguarding the valuables of others (ie, the resources assigned by the organisation for use in PPP).

Stakeholders and sustainability.

7. To derive a working PPP definition:

PPP Governance is the creation and implementation of the framework and principles by which the organization’s PPP activities are directed, supported, monitored and controlled.

In January, my blog The art of giving feedback looked at the topic of providing actionable feedback on performance to your team members. The post suggested all feedback should be actionable and most should be positive. However, it is inevitable that some feedback has to be critical in nature and ways to deliver this to achieve the maximum effect were discussed.

What was not discussed in January, the focus of this post, is how we can make use of negative feedback directed to us! Every manager and team leader has a supervisory role that requires them to offer feedback to their ‘team’ (or direct reports), whilst also being part of their manager’s team making them the recipient of feedback from their ‘bosses’ as well as from peers and in more open organisations subordinates. In short we all give feedback and we all receive feedback!

Receiving positive and constructive feedback is a pleasant experience that lifts our spirits and increases motivation and commitment; it’s easy and enjoyable. Making positive use of negative feedback is more challenging, particularly if the feedback is not well constructed, but is also the key to real improvements in your performance. You need to listen then act (see more on Active Listening).

The starting point is to accept that the negative feedback with openness and gratitude, even if you do not agree with it. You must keep in mind this type of feedback is intended to relay information that may be useful to you as long as you hear what is being said. What you then choose to do with the information is your decision, to be made later; but before you can decide on a course of action, you have to have listened to, and understood, the full message. After you have listened to the feedback say, ‘thank you’ and ‘I appreciate you taking the time to bring this to my attention’.

But be careful, unfair and overly negative feedback is used as a tool by bad managers and workplace bullies to demean and control others and requires a more robust approach discussed in Dealing with difficult people. You should not put up with this kind of attack, if you do, it will persist. However, even whilst ‘pushing back’ against this type of attack, there may still be opportunities to learn and grow – it’s sweet revenge on the bully to be able to use their ‘put-downs’ to help you advance your career.

So regardless of the intentions of the person providing the criticisms, the ways to turn negative feedback into a positive learning opportunity include:

1. Own it. Accept the feedback and make any necessary changes. Do this by turning the feedback into a list of actionable items and write down a SMARTER solution (see more on SMARTER) for each piece of negative feedback. Then work your plan.

2. Assume good intentions. Don’t automatically jump to the conclusion that the person providing negative feedback is ‘out to get you’, and remember that they are (or should be) criticising your work, not you as a person. Once you’re able to do this, it is much easier to make positive changes.

3. Clarify expectations and goals. Use the negative feedback as a chance to clarify your manager’s expectations and as an aid to understanding your role.

4. Build rapport. Use the negative feedback loop as an opportunity to bond with your manager. Their job is to help you develop, whilst yours is to bring results. Schedule regular meetings to discuss your progress and goals; get to know your manager and understand what he or she values most in an employee. This is your chance to show that you’re open to change and capable of growth, and is a great opportunity to show that you are mature, cooperative, and able to make necessary changes.

5. Get a mentor. Use this as an opportunity to find a mentor or strengthen your relationships with co-workers. If you’re in a situation where you need help or support—this is a great time to build those relationships.

6. Use reflective learning. This as a good time for some serious self-reflection. Use the opportunity to think about all the ways in which you can improve your behaviour and attitude.

7. Appreciate the attention. Remember that all constructive feedback (even negative feedback) is a sign of interest and a sign that people want to help you do better.

None of these ideas are particularly difficult to implement once you make the initial transition from seeing negative feedback as an ‘attack on you’ and reframe the criticism as an opportunity to learn and improve your performance. Achieving this needs ‘persilience’ but is well worth the effort (even with bad managers) – the alternative is to become negative and defensive which can only lead to dissatisfaction and eventually leaving or losing your job.